UK student housing market faces oversupply amid Covid-19 crisis but Singapore private equity firm sees values in investment plan
- Asset owners face short-term income pressures from weak demand due to Covid-19 restrictions but prices are holding up well, Knight Frank says
- Singapore-based Q Investment Partners is seeking £30 million to buy assets in London, Bath and Edinburgh as long term plan
“There are pressures building for operators,” said Tom Leahy, senior director for Europe, Middle East and Africa analytics at Real Capital Analytics (RCA). “Pricing trends in the listed sector do imply that we should see a fall in the direct market.”
The global restrictions on travel mean student accommodation providers who are most dependent on demand from overseas students are likely to be under greater stresses than other owners with a focus on the domestic market, he added.
The UK is the second largest market for purpose-built student accommodation, according to Knight Frank. Rapid growth over the last decade means that the sector has expanded into a £65 billion pool after private equity firms and sovereign wealth funds waded into the asset class.
Blackstone, one of the most bullish investors, paid £4.66 billion in February to acquire iQ Student Accommodations in the largest private UK property transaction deal, according to Savills. The purchase came before the UK’s first lockdown in March.
A recent Knight Frank survey of six of the largest UK student operators who control 170,000 beds or 25 per cent of the supply showed that bookings average could be 77 per cent for the autumn semester. None of the stock is distressed and pricing is holding up well, said Neil Armstrong, joint head of student property.
Still, some challenges remain, he added, as construction delays earlier this year suggest some developers will struggle to complete their projects before the start of the academic year in September and October.
“We are aware of one or two development sites that have stalled,” Armstrong added. “For operational property, the exact position on where operators income will be for the next year is still not known.”
Despite the current market wobble, Singapore-based private equity firm Q Investment Partners is thinking long term by proceeding with a plan to raise £30 million from Asian investors to build as many as 2,000 rooms by 2022.
Chinese student applications to UK universities up by 30 per cent
“We are launching it now because we are seeing investors in Hong Kong are particularly excited and have appetite to invest in the developed markets,” co-founder and chief executive officer Peter Young said. “From those investor profiles, we are seeing a mode of appetite to invest in real estate that has the resiliency.”
The UK is the second most popular destination for international students, with mainland Chinese, Indians, and Hongkongers making up the biggest contingents seeking British university spots this year, according to admission statistics.
For this academic year, a record 515,650 students have received their places, an increase of 4 per cent from last year.
QIP, which has managed over US$300 million in real estate assets, is seeking fresh capital to acquire five assets in London, Bath and Edinburgh with the intention of converting underperforming properties into high-demand student accommodation. The fundraising will close in six months, Young added.
“The UK student housing has particular unique attributes,” he added. “Certainly with the pandemic, the journey of the sector puts it at the very top of the tree when one looks at other real estate markets that may have been impacted pretty badly.”
